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Recovery in sight for Japan's retail sales

Consumer confidence has improve, but is not yet hitting pre-pandemic levels.

Japan’s retail sales is expected to see a recovery towards the end of 2021, as the country vaccinates more of its population and consumer confidence steadily recovers, according to a report from Fitch Solutions.

Japanese retail sales have struggled to return to positive growth since the start of the pandemic period in March 2020. Retail sales fell 2.4% YoY in January, as consumers continued to cut back on apparel purchases.

Further, the second and third waves in December 2020 and March 2021, respectively, have continued to put pressure on physical retail and on consumer confidence in the country. Fitch noted that there has been an improvement from the record low in April 2020 for consumer confidence, but it has yet to recover to pre-Covid-19 levels.

“February 2021 records a month-on-month (m-o-m) rise in confidence levels (33.8 compared to 29.6 in January 2021), but this reading is still lower than the 38.3 recorded in February 2020,” the report stated.

Real growth in Japan’s household spending is projected to return to positive growth territory of 1% YoY, marking a start of a recovery from the 5.5% contraction in household spending estimated over 2020.

However, Fitch warned that whilst growth is positive, it is stemming from a low base due to the significant contraction in spending over 2020, as well as negative consecutive readings over 2018 and 2019.

The report noted that growth in household spending over 2021, projected at $2.61t (JPY287t) will not be high enough to put its real value above that of 2019 at $2.73t (JPY300t), with the recovery set to continue into 2022.

Still, all of the main consumer spending categories are expected to return to positive growth in 2021. Food and non-alcoholic drink spending were prioritised in household budgets in 2020, and so growth in spending on these items will be slightly lower than in 2021.

Meanwhile, spending within other consumer categories is estimated to have recorded significant contractions over 2020, as households cut spending on non-essential items and retail and business operations in these categories were curtailed due to lockdown closures. As such, these categories will grow from a relatively lower base over 2021.

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